July 7, 2007

GenVec: Potential Markets and Financials

GenVec has never turned a profit, and operating cash flows are very negative. The company claims it only has enough cash to operate for another year and a half. So, why does this company have value on Wall Street? Potential, that's why. Companies like GenVec is where rNPV comes into play when determining a value for the company. (See my previous post on rNPV) Today's post will look at the potential markets for GenVec, which are the foundation for my valuation of the firm.

GenVec's lead drug has to be valued several different times because it has the potential to treat four different types of cancer.

1. Pancreatic Cancer
--TNFerade is currently being tested in Phase III. Its Phase I and II tests have been highly successful, with survival rates much higher than the standard radiation treatments. Pancreatic cancer is the fourth-leading cause of cancer deaths, with approximately 37,000 new cases yearly. The market has been estimated at $2.6 billion and analysts have pegged TNFerade with potential peak sales of $250 million. These estimates give TNFerade almost a 10% market share in the Pancreatic Market. I estimate that TNFerade could make it to market by 2010 if all goes well, with peak sales achieved by 2012.

2. Melanoma
--TNFerade is in Phase II for the treatment of melanoma. TNFerade showed good success in a limited Phase I trial and the current Phase II trial is limited before further enrollment. There are 62,000 new cases of melanoma each year and 10% of those are metastatic, which could be treated by TNFerade. The market is estimated around $250 million, but is growing rapidly (around 19% annually). With limited competition in this area, I have pegged a 30% market share for TNFerade, which would give peak sales of $212 million by 2015.

3. Colorectal Cancer
--TNFerade is in Phase II trials for colorectal cancer. This market is estimated to be around $7 billion, with approximately 41,000 new cases yearly. I have estimated a 5% share for TNFerade due to significant competition in this field, which could give TNFerade $300 million in peak sales by 2015.

4. Head and Neck Cancer
--GenVec is sponsoring two separate Phase I trials for TNFerade in the treatment of head and neck cancer. There are approximately 34,000 new cases each year of this type of cancer and the market is approximately $100 million and growing around 17% annually. I have estimated peak sales of $50 million by 2016, which gives TNFerade a 17% market share of a potential $300 million market by then.

GenVec's age-related macular degeneration drug AdPEDF could bring significant value to the company as well. There are approximately 200,000 new cases of wet AMD yearly in the United States. However, the market is only $1 billion, but could reach $1.5 billion by 2015. I have estimated a 20% market share as current competition currently own about that much apiece. By 2015 current drugs will be outdated, so I think AdPEDF could reach almost $300 million in peak sales.

Next Post: I will put my estimates together to come up with a value for the company


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